Citi China said on Monday (November 2) its direct custody and clearing (DCC) business has completed a series of securities lending transactions in the country’s A-share market as the custodian for a prominent global client under the Qualified Foreign Institutional Investors (QFII) scheme.
This makes Citi one of the first custodian banks in China to support the expanded QFII investment scope (including securities lending, margin trading and securities financing, financial and commodity futures, options, and private funds) under the new QFII regulation which took effect on November 1.
Originally launched in 2003, the QFII programme provides global investors with direct access to China’s capital markets. It has evolved through the years -- the Renminbi QFII was launched in 2010, and the Stock Connect programme was introduced in 2014. The latest developments in 2020 include the removal of investment quota restrictions by the State Administration of Foreign Exchange and the announcement of the new QFII regulation by the China Securities Regulatory Commission.
The new QFII regulation made significant amendments to the previous regime, including unifying QFII and RQFII schemes, expanding permissible investment scope, as well as streamlining the application and review procedures, thereby offering a more convenient and flexible framework for foreign investments in China’s capital markets.
Citi was among the first banks to receive approval from Chinese regulators in 2003 to act as a QFII custodian. In subsequent years, Citi obtained a Bond Settlement Agent (BSA) licence and the Futures Margin Depositary Bank (FMDB) licence. Recently it obtained the domestic fund custody licence, a significant milestone enabling it to service onshore mutual funds and private funds, including the PFM (private fund managers) funds, which are now under the permitted investment scope of QFII.
David Russell, Citi’s APAC head of securities services and Hong Kong head of markets, comments: “We are pleased to have implemented the securities lending transactions as a custodian on the first trading day when the new QFII regulation became effective. The strength of our DCC business is our ability to deliver local expertise and innovation to our global clients, and this transaction exemplifies that. Our in-depth understanding of the market, client-centric mindset, close relationships with local regulators and market infrastructures have reinforced Citi’s leading position in China. The relaxed QFII regulation provides exciting new ways for global investors to participate in China’s capital markets. Citi is well positioned to help them navigate and capitalize these tremendous opportunities.”
Ji Yang, Citi’s China head of markets and securities services, adds: “We are busy helping a wave of new foreign investors to apply for their QFII qualifications, including more successful applications for qualified hedge funds and private equity funds. Recently we helped a quantitative hedge fund to get its QFII approval, the first of its kind in QFII’s history and another testimony of further China opening-up.
“With this new QFII regulation, we expect that global brokers and hedge funds can finally play an active role in China’s A-share margin trading and securities financing, while private equity funds can enjoy a low-cost channel to invest in onshore companies with flexible repatriation, and asset owners/asset managers can lend out their securities for higher portfolio yield.”